1031 purchase replacement property below market value

[Mike Flora]

Can this work for a 1031 exchange and how would this be taxed. This is an example below but easily could be done in the future of my business. I️ sell my free and clear property for 100K, which is what it appraised for. I️ purchase a property worth 160K for 90K and it needs 10K repairs and I️ wanted to use that 10K left over to invest in the property I’m purchasing. What happens in this scenario if I️ wanted to do a 1031 exchange. Technically I’m buying a like kind property worth more than the property I’m selling just my purchase price is lower than what the property is worth.

[Bill Exeter]

Hi @Mike Flora, 

I think your original post indicated that you would be selling your relinquished property for $100,000 and not $160,000.  In this case, if you sell for $100K and then buy for $160K you have met your "top line" number by acquiring a property of equal or greater value.  However, if you only reinvest $90K of the cash and have $10K left over, the $10K would be taxable boot because it was not reinvested.  

You can do an Improvement 1031 Exchange where we as the Qualified Intermediary would acquire and hold legal title to the replacement property and then use the balance of the $10K to make the improvements.  However, the fees associated with an Improvement 1031 Exchange (also referred to as a Build-To-Suit 1031 Exchange or Construction 1031 Exchange) would not justify doing so for only $10K. 

Does that help?